ResidualsBefore you buy
Seven questions that tell you what you are actually buying — before anyone talks about price.
Two catalog deals can look identical from the outside and be four different assets underneath. These are the seven things worth checking first. None of them need an adviser to answer. All of them move the number.
The master and the composition are two different assets. They are often owned by two different people and they pay on two different schedules. The composition splits again into a writer's share and a publisher's share. So a deal described as "the catalog" can be any one of four things.
The tell"The catalog," said three times in a meeting, never once with a modifier.
Every transfer from the original creator to the person selling it has to be documented, in order, with nothing missing. Gaps sit quietly for decades and surface at the moment the asset starts earning again. They tend to live where an estate was divided, a partnership dissolved, or a company was never properly wound down.
The tell"It's all been handled." Handled by whom, and can you see it?
US copyright law gives creators and their heirs the right to terminate an old grant and take the rights back. The windows are set in statute — roughly 35 years out for grants made from 1978 onward, on a different calculation for older copyrights. If a window opens inside your hold period, you did not buy what the deck says you bought.
The tellThe answer is a shrug. The answer should be a date.
An unrecouped advance is a claim on income that has not arrived yet. So are producer and featured-artist points paid off the top, and any stream already sold forward to somebody else. Gross receipts and what the owner actually banks are frequently different numbers, and only one of them is the asset.
The tellRevenue shown gross, with no walk down to net.
A residual arrives whether or not anyone shows up. Touring, appearances, brand deals, and an active account are not residual — they are a job attached to a person, and that person can stop, age, or leave. Strip those out and look at what remains. The remainder is what you are buying.
The tellA trailing twelve months that happens to include a tour year.
Samples, interpolations, and uncleared elements are liabilities that travel with the asset. So are the rights people assume are included and often aren't: name and likeness, trademarks, archive footage, photography, artwork. In estates, these are frequently the larger half of the value and the larger half of the risk.
The tell"It's been out twenty years and nobody's ever come after it."
Money only reaches the owner if the works are registered correctly with the collecting societies and the streaming services, in every territory that earns. Misregistered and unregistered works sit in unclaimed pools. Fixing that is the cheapest upside in most catalog deals. Occasionally it is the entire thesis.
The tellNobody in the room has run a registration audit before.
You now know what you are buying. You still don't know what it is worth. Pricing is a separate sheet of paper — the multiple, how fast the income decays, and what comparable assets actually traded for, rather than what the seller heard they traded for.
That is underwriting, and it is where most of the money in this asset class is made or lost.
— Chris
Residuals
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A diligence frame, not a legal opinion. Chain of title and termination analysis belongs with counsel — this is for knowing when to call them, and what to ask for when you do.
